Best Home Loan Rates
How low can you go? The best home loan rates on offer to you right now.
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The market for home loans at the moment gives aspiring borrowers a relative glut of options to choose from. However, you should always look a bit deeper to find the gems that lay within and compare the top lenders you’re considering. We’ve compiled some of the best home loan interest rates for you to consider when comparing which lender to go with.
How do I find the best home loan rate?
The short answer is that you need to do your research before choosing your home loan. Doing your own background searching is a great place to start and will yield a multitude of results from a wide variety of sources, but only reading about the first one or two lenders that popped up will more or less be a shot in the dark which you can’t afford to make. Even if one of these turns out to be the home loan you go with, it’s always better to be able to cast a wide net for lenders to look into.
The key for anyone researching home loans is to compare between lenders and types of loans. Savvy is a great place to start, as a glance at our rates table show the loans on offer right now that we think could be great deals for you. However, while interest rates are a key piece of the puzzle, they are just that: a piece. There are a variety of other factors that you’ll have to consider before making your final decision. If you’re wanting to know what to look for in terms of comparison points, some of the most important areas (in no particular order) include:
Interest rates
The star of the show when it comes to home loan advertisements, lenders will always ensure this number is as bold and central as possible. In this respect, they’re perhaps the easiest element of home loans to compare. They’re likely to differ quite significantly between lenders, so it’ll be simple to pick out a favourite in the pack. There are different ways you can choose to set up the interest rate on your home loan, which we’ll discuss later on. As of the time of writing, home loan interest rates have fallen across the country and are generally sitting between 2% and 3%, with some lenders offering even lower rates.
Fees
You’ll find these are generally more well-hidden by lenders compared to interest rates, but the best home loans are separated from the rest by their better fees. Every borrower will have to pay fees on their home loan, but you can cut down on how much money you’ll have to devote to fees by analysing home loans closely. Payments such as application and ongoing monthly fees are often able to be negotiated, and can be waived entirely.
There’s a simple way to compare fees between home loans, and that’s through their comparison rate. This is a figure that adds what you’ll have to pay in fees on top of your interest rate to give you a better sense of your overall repayment. These will always be listed on lender sites, so keep your eye on comparison rates for a general idea and contact lenders for questions about individual fees.
Lender
You’re not limited to banks and credit unions when it comes to searching for home loans. While they’re generally the most well-known, borrowers also have the option of going to a non-bank lender, which tend to function online. Home loans from these lenders are often known to contain more affordable rates and fees, as well as offering a more personal service to their customers. However, the products offered are typically more limited than banks and they may not be qualified to accept deposits.
You can start to compare options like these on Savvy, as we assess the best home loan rates to help inform your decision, while a mortgage broker could also work for you if you’re unsure about where to look.
Loan-to-value ratio (LVR)
LVR is the figure used to calculate what a lender’s home loan offering is as a percentage of your property’s value. For example, if you’re looking to buy a house valued at $600,000 and wanting to apply for a $500,000 home loan, the LVR would be 83%. Your LVR will also be shaped by how much you can afford as a deposit on your property. Lenders will have different policies when it comes to LVR, with many not accepting loan applications with an LVR below 80% while others may be willing to accept as high as 95% LVR applications.
What type of interest rate is the best for my mortgage?
Whether your interest rate is fixed, variable or split will be a contributing factor to how much your monthly repayments will cost. Let’s break down the ways you can configure your home loan’s interest rate and how that can affect you.
| Type of home loan | What it is and how it works | Things to like | Areas to consider |
|---|---|---|---|
|
Fixed rate home loan |
This type of home loan locks in its interest rate for a pre-determined period, usually up to five years. |
This means that you’ll know exactly how much interest you’ll be paying over that period, which is useful for planning out your finances well into the future. Having the surety of the same payments over the course of the fixed term is appealing to many potential customers, as they might not wish to leave such a massive financial commitment at the mercy of the market. |
You could lock yourself into a rate that ends up being quite poor with no way of taking advantage of it unless you pay your way out of the loan with a hefty break fee. Also, if you’re looking for the flexibility of making early or extra repayments, a fixed rate might not be the one for you. These loans typically will be strict on keeping your repayments to one-month intervals and may charge you a fee for submitting a payment outside of this system.
|
|
Variable rate home loan |
Unlike their fixed cousins, variable rate home loans are dictated by fluctuation (or lack thereof) in market rates at any given time. |
The major benefit of these loans is that your rate can drop and save you money on your repayment. Australians typically go for variable rate home loans because of the ability to make repayments outside of the once-monthly cycle, which allow borrowers to save considerably on interest and fees that might’ve been paid for the extra months or years that their loan was meant to run. |
However, the variable rate means that your repayments can vary on a monthly basis, throwing the prospect of budgeting through a bit of a loop. Also, interest rate rises will impact your repayments on a variable rate home loan.
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|
Split rate home loans |
For a split rate home loan, the lender will divide the loan amount into fixed and variable portions. |
This adds flexibility for the borrower, as they can decide what percentage of their loan will be fixed and the percentage of variable loan. Split rate home loans present the positives of both types of interest, as borrowers can make added repayments while also having the security of knowing how much they’ll pay in interest month to month. |
Separating your loan in two will mean that you’re effectively paying fees and interest on two smaller mortgages, which can pile up. Furthermore, the fixed portion of your home loan can complicate things if you’re looking to move to another loan. You’re likely to be hit with a hefty break fee if you look to make the switch. There’s also always the notion that if you get your split wrong, you could end up costing yourself quite a bit of money. |
How can LVR help me get the best home loan rate?
Generally, lenders will be more willing to offer better rates to borrowers with lower LVRs, particularly those below 80%. We’ll use an example to demonstrate how you can save with a lower LVR. You’re looking to buy a house worth around $500,000 but you’re not sure how much to put up as a deposit. You speak with a lender and they explain to you that you can get a 3% interest rate with a 15% deposit ($75,000), plus Lender’s Mortgage Insurance, but they’re willing to offer you a 2.25% interest rate if you can bring your deposit up to 20% ($100,000). The price breakdown might be as follows:
| Deposit | Amount owed | Interest rate | Monthly repayments | LMI | Total interest paid | Total repaid |
|---|---|---|---|---|---|---|
|
15% |
$425,000 |
3% |
$1,791.82 |
$4,887.50 |
$220,054.17 |
$649,941.67
|
|
20% |
$400,000 |
2.25% |
$1,528.98 |
$0 |
$150,434.39 |
$550,434.39
|
|
– |
– |
20% SAVING |
$262.84 |
$4,887.50 |
$69,619.78 |
$99,507.28
|
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Your home loan options
Best features to consider when comparing home loans
Offset account
This feature allows borrowers to deposit funds into an account connected to their home loan to chip away at their loan total. The money put into the account does not have any interest attached, so this reduces the overall amount that borrowers owe.
Redraw facilities
These add further flexibility to your home loan, as these make extra loan payments available to be redrawn from. This means that in the case of an emergency, there are options open to borrowers if they’ve been able to regularly contribute to their home loan.
Additional payments
Most often occurring in variable rate home loans, many borrowers will be able to make payments on top of their regular monthly instalments. This can make a big difference, as they facilitate the loan being paid off more quickly and reduce the interest and fees that you’ll have to pay.
Honeymoon rate period
This feature is also known as an introductory rate and is a basement-rate initial interest deal that typically lasts for the first 12 to 24 months of your home loan. After this period, your payments will revert to a higher interest rate, which may not be as affordable.
Interest only period
An interest only home loan feature cuts down on your repayments for the first one to five years of your home loan. During this period, your payments will only be contributing to the interest on your home loan, rather than both principal and interest. This feature is most popular amongst property investors who are looking to free up funds early on to continue paying off other debts.
Top tips on how to get approved for the best home loan rates
Assess your credit rating
Lenders will always look to your credit history and current finances when assessing your application, so ensuring that your credit report reads well is of paramount importance. This can be done by paying off any existing debts, cutting down on unnecessary spending and maintaining a consistent, stable income stream.
Maximise the amount you pay for your deposit
The less you pay for your deposit, the better it is for all parties. While an increased deposit means less to repay (lower repayments, less overall interest paid), it also reduces a lender’s feeling of risk in putting up their money for the purchase. If you’re able to pay a deposit of at least 20% the property’s value, you can open yourself up to the top interest rates.
Ensure you meet the lender’s criteria
Each lender will have a list of eligibility criteria that every potential borrower must meet before proceeding with their application. It’s advisable to check these in advance to make sure that you’re not wasting your time with an application you won’t be approved for.
Try to negotiate the best home loan rate with your lender
Despite what you may think, there is room for you to haggle over interest rates with your chosen lender. If you’re looking to go with your current financial institution, this could help you access the best home loan rates. If not, though, you can still negotiate a deal with your lender. Remember that lenders are just as keen to gain you as a customer as you are to secure a home loan.
